After considerable fits and starts, the employer responsibility provisions of the Patient Protection and Affordable Care Act (PPACA) are now in full play. While implementing regulations and related notices can be complex, business owners should understand the basics in order to avoid penalties, identify the best-suited healthcare solutions for their workforce and remain compliant as they grow.
What Is Employer Shared Responsibility?
Since January 1, 2016, employers that generally employ 50 full-time employees (or a combination of full-time and part-time employees that is equivalent to 50 full-time employees) are subject to the employer shared responsibility requirements of PPACA. This includes for-profit, nonprofit and government employers. The U.S. Treasury Department estimates approximately 96 percent of employers in the United States are small businesses (49 or fewer full-time employees), which means the employer mandate doesn’t apply to them. However, it’s prudent for owners of such businesses to understand the law if they plan to grow or are nearing the cusp.
Under the law, applicable large employers may face financial penalties if they don’t offer coverage to at least 95 percent of their full-time employees that is also “affordable” and meets “minimum value” standards. Coverage is considered “affordable” if it is less than 9.66 percent of an employee’s household income. “Minimum value” covers at least 60 percent of the total cost of medical services for a standard population, as well as substantial coverage such as inpatient hospitalization and physician services.
Since January 1, 2015, employers with more than 100 full-time employees have been subject to the shared responsibility requirements. Since the start of this year, those requirements were extended to employers with more than 50 full-time employees.
An employer will be subject to the penalty if at least one full-time employee receives a premium tax credit for purchasing individual coverage on a health insurance exchange.
The Kaiser Family Foundation offers a simple flow-chart to help employers understand their PPACA shared responsibilities: bit.ly/employers-ppaca
Who Is Considered a Full-Time Employee?
Generally speaking, a full-time employee is employed on average at least 30 hours per week. Employers utilize employee hour data from the prior year to determine full-time status. However, an employer that wasn’t in business the prior calendar year is considered an applicable large employer if it was reasonably expected to employ an average of at least 50 full-time employees.
PPACA also requires that an employer examine the number of part-time and seasonal employees to determine how those employees calculate to “full-time equivalents.” For example, if an employer has 40 employees working an average of 30 hours per week and 20 working an average of 15 hours per week, the employer would have 50 full-time equivalents. Thus, the employer would be an “applicable large employer.”
Essentially, in addition to offering coverage to at least 95 percent of its full-time employees and their dependents, an employer must offer affordable, minimum-value coverage to its employees and their dependents. For purposes of PPACA, a spouse is not considered a dependent.
Penalties for Failure to Comply
Again, what triggers an employer shared responsibility payment is a full-time employee obtaining coverage through a health insurance exchange and receiving a premium tax credit. And, while the employer is required to offer coverage, employees are not required to enroll for such coverage. However, the individual PPACA mandate may likewise create penalties for the employee.
The penalties can be complex and confusing. In that regard, employers could face two different penalties — one for failure to offer coverage to 95 percent of employees and eligible dependents, and one for failure to offer coverage that’s affordable and provides minimum value. However, it’s anticipated the Internal Revenue Service will adopt procedures so employers receive a notice that one or more employees have received premium tax credits on a health insurance exchange. The IRS will then contact employers to notify them about the potential liability/assessment and provide them an opportunity to respond.
From a practical standpoint, most employers still purchase employee benefits from insurance companies authorized to do business in Arizona. Those insurers are intimately aware of the PPACA employer shared responsibility provisions. Thus, the easiest course is to procure insurance from a reputable, licensed insurer that clearly identifies their policies as PPACA compliant. At that point, offering that coverage to all full-time employees and their dependent children should keep companies on track for avoiding employer shared responsibility penalties.
Kathy Steadman is a shareholder with Coppersmith Brockelman in Phoenix. She primarily practices in the areas of employee benefits, public pension, insurance and other regulatory matters.